Data-rich insurers about to get richer. Can they handle it?

Copy-of-umbrella_20090325Insurers are already awash with data, but they’re about to get a whole lot more. That makes their current under-investment in technology to analyse data all the more troubling. A recent report, surveying more than 300 insurers around the world identified insurers as ripe for disruption, unless they invest in new technology to better analyse data.

Platforms for Growth: Technology Innovations in the Insurance Business – produced for State Street by the Economist Intelligence Unit – identifies the targeting of new customer segments within their existing geographical markets as the top priority for insurance companies. But to achieve that, they need “fresh insight into customer behaviour,” which in turn requires “significant investment in technology — to overcome historical data silos and integrate legacy systems, and to introduce the new data and analytics tools that will give insurers a competitive edge.”

As I mentioned, insurers already have tons of data, but like most companies, they only analyse a small portion of it. They have legacy claims systems and underwriting platforms that are not going anywhere soon. And if those legacy systems are creaking under the strain now, then they’re going to get a whole lot more creakier as the Internet of Things explodes, potentially offering insurers all sorts of highly relevant, highly targeted data from devices on their customers wrists, in their cars, from medical devices they use, from buildings they visit and so on. But given just 39 percent of insurers in the survey said they are “very effective at collecting and aggregating data, and turning it into actionable insight,” there are many changes to be made before they can take advantage of all this additional data as well.

That data explosion creates both opportunities and challenges for insurance companies. The opportunities are to measure much more accurately what is actually going on when an incident occurs, or examine the actual medical history of a customer, beyond what they merely tell the insurer. That in turn throws up major two-fold challenges. Technically, they have to figure out how to integrate that data into their legacy IT infrastructures and secondly, the proliferation of such highly personalised data throws up major ethical and privacy challenges. Just because insurers could find out the precise details of a customer’s medical records updated with data from their wearable devices, it doesn’t mean they should. More data and more powerful and granular analytics has the potential for a fundamental shift in actuarial science and insurance business models, companies move away from social risk to a highly-personalised and differentiated policy for every person or object, because the data is available to measure it.

In terms of how to address this all this with technology, insurers are looking beyond traditional relational database and data warehouses because they don’t believe they are suitable  – either from a technical or a cost standpoint – for the kinds of analytics they need to perform. Some of them are using cloud-based technologies to bypass legacy infrastructure and get analytics up and running faster. However some questioned in the survey expect regulators to start taking a tougher line on any customer data stored in public cloud infrastructure, so private cloud will likely by the favoured option. Given only 9% of those surveyed deem their companies  to be “excellent at aggregating investment data to gain a comprehensive portfolio view,” there’s clearly a ways to go.

I’ll look at fraud prevention in insurance later; it’s a huge issue and too much to cram in to one post. 

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